When too much in super contributions costs you more tax…

We all like to think that making extra superannuation contributions is a good thing, but too much can actually cost you more tax.

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There are caps on the amount you can contribute to your super each financial year to be taxed at lower rates. If you contribute over these caps, you may have to pay extra tax.

For the 2018-2019 financial year the cap is $25,000.

This includes the following contributions made to your fund

  • compulsory employer contributions
  • salary sacrifice payments made to your super fund
  • contributions you are allowed as an income tax deduction 

The excess contributions (amounts over the $25,000) are included in your personal tax return and taxed at your marginal tax rate plus an excess concessional contributions charge less the amount of tax paid on those contributions in your super fund.  For most taxpayers, this will mean an additional 32% of tax will be payable on the excess amount.

The good news is, that the ATO allows for you to withdraw the excess contributions (net of the tax paid in the superannuation fund) if you choose.  The amount you choose to withdraw can be used to pay the additional tax due or for whatever purpose you choose.  When you receive your excess contributions notice from the ATO, they will include instructions on how to do this. You should talk to your financial advisor in relation to whether withdrawing these funds is right for you in your circumstances.

When your accountant is preparing your income tax return for the year, they are not able to see how much has been contributed to the retail or industry funds.  This causes some confusion when the ATO processes your tax return and automatically includes these excess amounts (and the extra tax that applies), but the estimate that your accountant provided to you does not.

You are able to find out how much you contributed into your super fund by contacting your super fund yourself or phoning the ATO on 13 10 20.

If you think that this may apply in your circumstances, it would be a good idea to do this and provide this information to your accountant when you get your tax return prepared for the year. That way, they can take into consideration any contributions when preparing your tax estimate and no nasty surprises when the ATO issues your Notice of Assessment.

For further information regarding the above, please contact our office on 07 5439 0188.

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